When the mortgagor (borrower) defaults in paying the note, then the mortgagee (lender) may either (i) sue on the note for a money judgment, or (ii) sue in equity on the mortgage for a foreclosure judgment on the property, where the court appoints a referee to sell the property at a foreclosure sale and use the sale proceeds to pay off the note. The mortgagee may not pursue moth remedies simultaneously.
- Example : Mack purchases a property for $400,000. He takes out a mortgage from Star Bank for $320,000, and he signs a note promising to repay that amount over the next 30 years at a fixed interest rate. Mack does not make the payments as promised and Star Bank sues on the mortgage to force a foreclosure sale of the property. The property gets sold for $325,000 and the mortgage amount is paid off.